Mitch Frazer comments on pension fund concerns in Financial Post

Pension liabilities threaten deals, lawyers warn

With lower interest rates affecting recent pension fund performance, M&A transactions are employing creative solutions to manage the potential impact of pension fund deficits’ on valuations. Partner Mitch Frazer was featured in the Financial Post, providing comment on ways businesses are approaching M&A deals in light of this development. Below is an excerpt of the article.

Mitch Frazer, a partner at Torys LLP in Toronto and chair of the law firm’s pensions and employment practice, says discussions over valuation are pretty much inevitable when funding shortfalls are large. But he says price adjustments are often enough to seal the deal.

Buyers and sellers, and their advisors, find a middle ground between what the actuarial tables say about the size of the funding deficit, and how the picture might improve if interest rates rise in the next few years.

“That’s usually the biggest HR issue you get in deals – valuation,” Mr. Frazer says. “What is the deficit really worth? Let’s see if we can find a number that works for us. Sometimes the deals go forward, sometimes they fail.”

Some transactions can still be completed, but only after something more creative, he says. An example of a more complex transaction would be one that isolates pension liabilities when a division is sold and leaves a portion of the obligations with the seller.